The stock price of Zeta Global Holdings (NYSE: ZETA), an AI-based marketing cloud platform, has risen a solid 20% in a week. Much of this move came after the company’s top executives announced their intention to buy $3 million worth of the company’s stock to boost investor confidence. Earlier this month, a short-seller – Culper Research – questioned the integrity of Zeta’s financials. This led to a sharp erosion in Zeta’s stock value from levels of around $37 to $18. Zeta recently stated that it has previously completed a forensic review of financials and the Culper report is false and misleading. [1]
These steps did help ZETA stock rise from levels of $18 to $23 now. Looking at a slightly longer term, ZETA stock has risen a solid 3x from levels of $8 in early 2023 to $23 now.
This 3x rise can primarily be attributed to:
- a significant 134% rise in the company’s P/S ratio to 4.5x now, versus 1.9x in 2022. Investors have rewarded ZETA stock thanks to the company’s strategic investments in AI that are helping it see strong sales growth;
- a 52% rise in the company’s revenue from $591 million to $901 million over the same period; partly offset by
- a 21% rise in total shares outstanding.
1. What’s Behind Zeta’s Rising Sales?
Zeta’s revenue growth is being driven by new customer additions. The company has seen its scaled-customers, which refer to customers from which the company has generated trailing-12-month revenue of at least $100k, rise from 403 in 2022 to 475 now. The scaled-customers account for nearly 97% of the company’s total revenues. The scaled-customer ARPU has risen from $1.4 million in 2022 to around $1.8 million now.
Earlier this month, the company reported its Q3 results, with revenue of $268 million, up a solid 42% y-o-y, and were above the street estimate of $248 million. However, the company’s bottom line of $0.16 was one cent shy of the $0.17 per the consensus estimate. Zeta also raised its full-year outlook, with Q4 sales now expected to be $295 million, up 47% y-o-y at the mid-point of the provided range, which is comfortably above the $268 million figure the street was anticipating. (Another company that had a big move on earnings, see What Just Happened To WSM Stock?)
2. How Are Zeta’s Profit Margins Trending?
On a reported basis, Zeta is still a loss-making company, with its operating losses narrowing from $259 million in 2022 to $102 million now. Its operating margin has improved from -43.8% to -11.3% over this period. However, on an adjusted basis, the company has reported a positive bottom line, given that it has a high stock-based compensation ($243 million last year or 33% of revenue).
3. Does ZETA Stock Offer Any Room For Growth?
ZETA stock has risen a stellar 170% this year, outperforming the broader markets, with the S&P500 index rising 24%. However, the changes in ZETA stock over the recent years have been far from consistent, although annual returns were considerably less volatile than the S&P 500. Returns for the stock were -5% in 2021, -3% in 2022, and 8% in 2023. Similarly, the Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts, could ZETA face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a recovery? Despite the recent surge in ZETA stock, we think there is more room for growth from its current levels of $23. As the company continues to see a high revenue growth rate, driven by both customer additions and ARPU improvement – its profitability is expected to improve in the coming years.
ZETA stock is trading at 4.5x trailing revenues, versus the 2x figure seen in 2022. With revenue growth expected to be 65% between 2023 and 2025, a rise in valuation multiple from current levels seems justified. At 6x revenues, the price estimate for ZETA will be over $40 in early 2026, considering the 2025 revenue of over $1.2 billion per the consensus estimate. This implies a 75% growth from here. Notably, the $38 average price of analysts’ estimates for ZETA stock also reflects a solid 65% upside from here.
Investors should take into account the risks as well. There are three factors – tariffs, deportations, and low taxes – that would make it difficult for the Fed to fight an inflation spike in coming months. And if the U.S. Fed were to pause the rate cuts, the broader markets could take a hit, which won’t bode well for individual stocks, including ZETA. Our take on Could S&P Crash More Than 40%? has more details on the above factors.
While ZETA stock looks like it may see higher levels, it is helpful to see how Zeta’s peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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